The Securities and Exchange Board of India (Sebi) plans to remove companies that carry out no real business from the stock exchanges, with the aim of shielding investors, especially those who put money into penny stocks.
Speaking in Kolkata on Saturday, Sebi chairman Tuhin Kanta Pandey said such companies are a potential risk for investors and should not stay on the list of traded firms. “We are making efforts towards their delisting,” he said.
Why inactive companies are a concern
A number of companies with no economic activity are still listed on the exchanges. According to the regulator, this can open the door to manipulation of share prices.
Pandey said these firms should not be allowed to clutter the listed space.
Penny stocks tend to attract investors who know little about the market, because the shares trade at very low prices, often below Rs 10 or Rs 20. When prices correct, these buyers can end up losing money.
An ET report dated November 1 found that as many as 10 penny stocks had dropped between 35% and 70% over the previous three months.
AI to flag trouble faster
Sebi is also working on an artificial intelligence-based system to keep watch on companies with very little economic activity. Pandey said the tool is meant to raise alerts more quickly than current methods.
Foreign investor norms under review
The Sebi chief also spoke about foreign institutional investors (FIIs). He said the regulator is likely to put out a consultation paper on their compliance requirements within weeks.
The paper will invite views on bringing Indian rules in line with global standards. It comes at a time when heavy foreign selling has contributed to a lasting slide in stock indices.
Foreign portfolio investors pulled out a net $31.4 billion from Indian equities in the first 10 months of the year. They have been looking for better returns in safe-haven assets, as US treasury yields rise, the dollar holds firm against other major currencies and geopolitical uncertainty continues.
Independent directors
Pandey added that Sebi will follow a consultative approach when it comes to building the capacity of independent directors.
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